Decline of Western automakers in China is a global warning | Company

Political interference is just one of the headaches of industrialists Western cars in China. Last month, Carlos Tavares, CEO of Stellantis, blamed government interference for the cancellation of the Jeep maker’s joint venture in the world’s biggest car market. More worryingly, however, local manufacturers are gaining market share and could soon gain a greater threat elsewhere.

For decades, major automakers seeking to establish a foothold in China have been forced into costly joint ventures with local firms. Beijing hoped this strategy would turn ineffective local partners into industry champions. But the policy failed. Not only did these companies fail to develop export markets, but even the most patriotic Chinese consumers preferred cars made by Nissan Motor, General Motors or Volkswagen. In 2000, the German company held more than 50% of the Chinese market.

However, as China eases restrictions on joint ventures, local competitors are ramping up gas. Last year, foreign automakers saw their combined share of the Chinese auto market shrink by 5.5 percentage points to 45.6%. In the first half of 2022, Volkswagen’s share was 15.5%.

Two factors are behind the growing competitiveness of Chinese automakers. First, the growing pool of domestic technical talent has helped create successful private automakers like BYD, Geely, which owns Volvo, and Great Wall Motor. They are now competent manufacturers of classic mid-range passenger cars and can attract top foreign designers from BMW or the Italian design firm Pininfarina.

The second factor is Beijing’s campaign to get ahead of the West in the development of electric vehicles. Last year, China registered 3.3 million hybrid and battery-powered cars, accounting for 16 percent of total sales. Europeans bought 1.1 million fewer electric vehicles. Chinese automakers can build lighter but still safer bodies compared to their international rivals, McKinsey believes. They also have access to cutting-edge battery knowledge from local leaders like contemporary $194 billion company Amperex Technology.

Currently, Tesla is the only foreign automaker to make the China Industry Association’s list of top 10 electric vehicles. Research firm Redburn estimates that Volkswagen holds just 10.8% of China’s EV market so far this year, although the $89 billion company plans to launch new models and invest in research and sales centers.

This increased competitiveness has repercussions outside of China. As local manufacturers grow, they reinvest their profits to compete against Western giants in other markets. BYD, the Warren Buffett-backed Chinese automaker that is vying with Tesla for the title of the world’s largest electric vehicle maker, shipped its first delivery of 1,000 vehicles in August. Atto 3 sport utility vehicles in Australia. As Chinese cars appear on Western roads, the volume of complaints about political interference will only increase.

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